fixed costs

Meaning

Fixed costs are business expenses that do not change based on how much a company produces or sells. Examples include office rent, salaries, insurance, and equipment leases. Because these expenses must be paid regardless of business performance, they are a key factor in financial planning.

Examples

• Even if we don't sell a single product this month, we still have to pay our fixed costs.

  Even if we don't sell a single product this month, we still have to pay our fixed costs.

• Our fixed costs are quite high because of our expensive downtown office lease.

  Our fixed costs are quite high because of our expensive downtown office lease.

• Software subscriptions are usually considered fixed costs for our department.

  Software subscriptions are usually considered fixed costs for our department.

• To lower our fixed costs, we negotiated a cheaper rate with our landlord.

  To lower our fixed costs, we negotiated a cheaper rate with our landlord.

• A business with low fixed costs can survive a drop in sales much more easily.

  A business with low fixed costs can survive a drop in sales much more easily.

Common Mistakes

• ✗ Our fixed costs changed this month because we bought more raw materials.

  ✓ Our variable costs changed this month because we bought more raw materials.

  Raw materials are 'variable costs' because they change with production volume. Fixed costs remain constant regardless of production.

• ✗ The fixed cost of our company is rent.

  ✓ One of our fixed costs is rent.

  Like operating costs, 'fixed costs' is typically pluralized when discussing the general category of unvarying business expenses.

Related Expressions

Practice

• Rent and insurance are examples of ___ because they do not change with sales volume.

  💡 Expenses that stay the same every month.

  Show answer

  fixed costs

• We need to make sure our revenue is high enough to cover our ___.

  💡 The basic expenses we must pay even if we sell nothing.

  Show answer

  fixed costs